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Importance of Corporate Governance on Bank Risk Management - Assignment Example

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Importance of Corporate Governance on Bank Risk Management

This paper concentrates on the application of these principles in banks and their importance in bank risk management. Corporate governance is important in banking institutions because it ensures that procedures are in adherence. Banks faces various risks which require proper planning on risk management in order to deal with them amicably (Gup 281). Corporate governance ensures equal treatment of shareholders by giving them a chance to participate in critical matters. This is possible in participation of meetings where important matters concerning a bank are in discussion. Here, the bank exposes the shareholders to decision making thus they exercise their rights (Matutes & Vives 5). They contribute by giving their opinions on certain vital issues hence helping the bank management on risks that it is likely to face (Matutes & Vives 5). The shareholders of banks via the participation in meetings feel respected because of involvement in decision making. This way, the bank exercises openness which is an important aspect in corporate governance (Tang & Changyun 52). The application of corporate governance ensures risks such as credit risks, liquidity risks, and market risks are in good management. This is possible through analyses of the risks expected in banks and using corporate governance principles to implement important decisions (Tang & Changyun 54). A banking institution is likely to face severe financial crises if exposed to credit risks. Corporate governance is able to reduce the level of credit risks plus increase the rates of return of bank by conforming to acceptable levels of risk exposures. Corporate governance provides procedure through which banks follow in order to deal with credit risks (Parlour & Plantin 1295). For example, there is a need of evaluation of the risk thus, measurement of the risk is vital. The process of quantification is present in the corporate governance principles. This is possible through proper estimates on the amount of loses to be incurred on loans. Performing adequate controls on loans by following important procedures is vital in the process of credit management (Mehran & Thakor 1032). Corporate governance offers the best tools for dealing with credit risk by providing exposure ceilings on capital funds. This ensures that the funds do not go beyond a certain percentage provided by the bank. Credit risk management will entail application of models for rating that vividly defines the frequencies of risks plus perform reviews at various occasions (Parlour & Plantin 1299). There is an association of risk pricing and the losses that the bank is likely to incur in terms of credit risks. The solution is possible via the provision of historical data to original losses. The provision of capital is able to incorporate the losses that are possible (Greuning et al 76). Corporate governance ensures that the bank management reduces credit risks by applying portfolios management techniques such as portfolio reviews, proper borrower division plus recognition of credit weaknesses which are fundamental in decision making procedures (Parlour & Plantin 1303). Corporate governance principles plus procedures provides banks with a basis for conducting credit operations such as auditing on loans for the purpose of solving risk problems. Auditing ensures tracking of various mistakes in balance sheets and other ...Show more


Name Professor Course Date Importance of corporate governance on bank risk management Introduction Corporate governance entails a variety of systems, principles plus procedures which direct a company. These principles and procedures provide a basis through which a company runs in an organized manner in order to fulfill goals plus objectives…
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